Flowing Wells Corporation is preparing its annual budget. As part of its analysi
ID: 2521131 • Letter: F
Question
Flowing Wells Corporation is preparing its annual budget. As part of its analysis of the contribution of individual products to overall profitability, the controller estimates the amount of overhead that should be assigned to the individual product lines. Budgeted inspection costs are $4,800. Additional information is as follows:
Under activity-based costing (ABC), the inspection cost assigned to one small pump would be:
A) $2.50
B) $5.00
C) $12.50
D) $10.00
Small Pumps 120 2.5 Large Pumps Units inspected Hours spent inspecting Direct labour hours per unit2 17.5Explanation / Answer
Inspection hour :
Small pumps = (120*2.5) = 300 hour
Large pumps = (120*17.5) = 2100 hour
Inspection cost rate = 4800/2400 = 2 per hour
Small pump inspection cost = 300*2 = 600
Unit cost of small pump = 600/120 = 5
so answer is b) $5.00
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